Teva CEO Tells Netanyahu: Layoff of 1,700 Israeli Employees Nonnegotiable

Kare Schultz says he can’t keep open two unprofitable Jerusalem plants, which account for two-thirds of the planned 1,700 Israeli layoffs

Workers protest outside the Teva Pharmaceutical Industries factory in Jerusalem, Sunday, Dec. 17, 2017
Ariel Schalit / AP

The new chief executive of Teva Pharmaceutical Industries told Prime Minister Benjamin Netanyahu on Tuesday that the company’s planned dismissal of 1,700 Israeli employees was not up for discussion.

Teva, the world’s largest maker of generic drugs, plans to lay off nearly 25% of its global workforce, including the 1,700 Israelis. It also intends to close its two plants in Jerusalem.

According to people who attended the session, Schultz appeared ready to turn down the government’s requests for reconsideration of the company’s plans regardless of the ministers’ arguments. The CEO, who is from Denmark, was accompanied only by Mati Gill, the head of govenment affairs at Teva. 

The government side also appeared to be unified. It included Finance Minister Moshe Kahlon, Economy and Industry Minister Eli Cohen, and Labor, Social Affairs and Social Services Minister Haim Katz.

None of the Israeli officials threatened the financially beleaguered company with a withdrawal of tax benefits, and none offered new grants.

According to the sources, Netanyahu spoke first, attempting to appeal to emotions and noting that the Petah Tikva-based company was the flagship of the Israeli economy and a symbol of Israeli industry, employing some of the country’s best people. Its plants in Jerusalem have a deep symbolic significance, Netanyahu reportedly said.

Schultz responded that he could not keep the Jerusalem factories open, saying that the operating costs were dozens of percentage points higher than at similar facilities elsewhere around the world. As a result, he could not close plants in other countries instead.

In addition to the closure of the two plants in Jerusalem, which employ 1,100 people, Teva plans to sell its factories in Kiryat Shmona in the north, Shoham near Tel Aviv and Ashdod in the south.

Spared from the cuts are the Teva Tech facility in Ramat Hovav in the Negev and the facility in the Tel Aviv suburb Kfar Sava. Both have already been hit by downsizing and are the subject of a labor pact through 2021.

The fate of other facilities in Israel is unknown. The company’s headquarters in Petah Tikva employs 1,300 people.

Errant acquisition

Teva, which was founded in 1901, has been saddled with nearly $35 billion in debt since acquiring Allergan’s Actavis generic drug business for $40.5 billion. The last of its patents on its best-selling Copaxone multiple sclerosis drug has also expired, cutting sharply into its biggest single source of profits and further weighing on its finances. 

Teva made a series of changes after Schultz became CEO. In a letter to Netanyahu after he joined the company, Schultz said action was needed to ensure Teva’s future. “It is clear that without taking drastic steps in the coming weeks and months, the company will be increasingly vulnerable to potential takeover by global financial institutions or activists with their own agendas and the risk is real,” he wrote.

On Tuesday, in response to appeals at the meeting to Israeli patriotism, Schultz, who took over just last month, noted that most of Teva’s shareholders are American and that the stake Israelis hold in the company has been declining for years.

Schultz acknowledged that he promised Netanyahu that the company’s headquarters would remain in Israel and that Teva would remain a corporation with an Israeli identity. But he said he was obligated to address the company’s operational and financial problems.

If Teva allowed loss-making plants to remain open, the entire company would ultimately close, Schultz said, and if Teva were to meet its debt obligations and prosper, the plants had to be shut down.

Kahlon, the finance minister, also spoke, largely echoing Netanyahu’s comments. Cohen, the economy minister, spoke as well.

Schultz said the only thing he could do was ensure that the Teva tablet manufacturing plant in Jerusalem was not shut down until the end of 2019. The sources said that, although Schultz portrayed this time frame as an indication of his willingness to defer the layoffs, it was clear that the schedule had been decided on long before the meeting.

At the end of the meeting, the two sides agreed that a team with representatives from Teva, the Prime Minister’s Office and the finance and labor ministries would meet to ease the situation of the laid-off workers.

Strikes and protests

Employees at all of Teva’s facilities in Israel went on strike for the day on Tuesday. The 700 employees at the Jerusalem tablet plant continued to hole themselves up in the factory.

In the afternoon, 2,000 employees and their families went to Jerusalem to protest in front of the Prime Minister’s Office during Schultz’s meeting with the Israeli officials. On Wednesday, strikes are planned at Teva facilities in Jerusalem and Ashdod, and at its Abic and Plantex subsidiaries in Netanya. Informational meetings are planned at other sites.

The issue of the closure of the Jerusalem plants was on the agenda Tuesday at a session of the Knesset Finance Committee, where a senior Teva vice president, David Lustig, confirmed that the plant would be shuttered at the end of 2019. The plants are not profitable and will not be profitable, he told the panel.

At the end of the session, Finance Committee Chairman Moshe Gafni (United Torah Judaism) announced that a number of committee members would launch negotiations with Teva and with the Histadrut labor federation and the government on Teva’s situation.

Asked whether the Jerusalem plants could be sold instead of closed, he said the plants’ future was linked to the products produced there, which Lustig said were loss-making, so the plants could not be sold.

That, he added, was in contrast to the Teva facility in Kiryat Shmona, which turns a profit and has a buyer. But he said Teva did not believe that there would be a buyer for the Jerusalem plants as going concerns.

The company’s overall plan, he added, was to save Teva as a whole.

In the face of criticism by members of the Finance Committee who noted that Teva had received more than 20 billion shekels ($5.7 billion at current rates) in Israeli tax breaks between 2004 and 2014, Lustig said that for every shekel the company received in tax concessions, it invested 1.65 shekels – a total of 30 billion shekels – in research and development and equipment.

At the Control Committee, however, Chairwoman Shelly Yacimovich said the tax benefits that Teva received were double its payroll costs. “Nowhere in the world and no other company in Israel has ever gotten such crazy and unremunerative benefits,” she said.